Financial Practices and Oversight. Financial and Business Services Charter School Summer Conference July 25, 2014

Transcription

1 Financial Practices and Oversight Financial and Business Services Charter School Summer Conference July 25, 2014

2 Overview Roles and responsibilities of the Board of Directors Why Sound Financial Practices are important Key fiscal accountability issues and recommended best practices Financial Monitoring and audits Implications of Financial Noncompliance

3 Governance Structure SBE Policy State & Fed Legislation Charter Other Laws Non Profit Board of Directors Policies and Procedures School Administration

4 Interested Parties Financial Audits The Public Federal Agencies Public Financial Records Financing Entities Media SBE / DPI General Assembly

5 Governance vs Operations Board of Directors Governance Creates and monitors the strategic plan Allocates human, material, and fiscal resources for systemic and sustainable implementation of educational programs Develops policies Hires and evaluates School Director Reviews and approves operating budget Reviews and approves financial statements as documented in board agendas and minutes Holds staff accountable for budget management Administration Operations Creates procedures to facilitate policies Hires and evaluates school staff Develops the school s annual operating budget and provides to board for review and approval Ensures charter school utilizes an acceptable and appropriate system for maintaining financial records Provides timely financial reports to board Regularly provides the board with reports comparing the budget to actual transactions as a financial management tool and explains discrepancies

6 Board of Directors An important and often overlooked responsibility of the Board of Directors fiduciary responsibility to the school to ensure sound financial management

7 Board of Directors Fiduciary Responsibilities Understand financial condition of school. Oversee the operating budget to protect the resources of school. Hold school staff accountable for budget management. Ensure that the necessary financial policies are in place to prevent fraud, waste and misappropriation.

8 Board of Directors Every Board should have a financially literate member, who has an understanding of: Budgeting Financial processes Financial Statements and Financial Audits

9 Finance Committee Develop finance and audit committee to monitor financial activity in greater detail and meets at least monthly to provide: Effective financial oversight Realistic budgeting and ongoing budget monitoring Appropriate internal controls and procedures Timely and accurate financial reporting Maintenance of adequate financial resources to ensure stable operations

10 Budgeting - Planning Defines goals and objectives for school administration and support services and develops program to attain those goals The educational objectives should drive the budget Begin early in the year in defining the short term and long term objectives that need to be funded

11 Budgeting - Preparation Resource allocations are made to support established objectives Be realistic and honest!! Begin with projected student enrollment which drives revenue estimation and staffing expenditures Example: An additional 25 students will require an additional teacher at a cost of $40,000, causing not only the school s revenues to increase but its expenditures as well. Prepare several budgets based on different revenue scenarios Allocate a portion of fiscal year revenues for contingencies (especially schools in the first three years of operation) Breakout by restricted revenue source

12 Budgeting Revenue - Average Daily Membership Fixed Costs Facility, utilities, insurance, administration Variable Costs Teachers, materials, paper Cyclical Costs Textbooks, computers Nice to haves new playground, enrichment classes

13 Budgeting - Evaluation Monitor budget-to-actual comparisons on a monthly basis and report results to the board with explanations of any significant variances. At the end of the year, determine its effectiveness in attaining goals and objectives Explain differences

14 Budgeting- Cash Flow Breakout the budget by monthly expenditures Incorporate cash flow projections to consider the timing of funding to expenditures

15 Goals of DPI Financial Oversight Ensure compliance with laws and regulations Identify financial weakness to prevent financial failure Required by the Federal Agencies for grants Assess financial health as part of the recommendations for charter renewal.

16 Financial Oversight Components Monthly expenditure and payroll files Annual Audited Financial Statements Student accounting records Desk top reviews Monitoring visits Notice of delinquencies from other entities Whistleblower

17 Financial Statements The audited financial Statements: Provide significant information about the financial health of the school Request that the audit firm present the audit to the Board and administration and explain them in easy terms Use the audit findings to improve and develop and implement corrective action plans to resolve identified issues If there is effective budget review, nothing in the audit should be a surprise

18 Financial Statements Ensure audits are submitted to the Local Government Commission (LGC) by October 31 st LGC will analyze financial data from audit reports, and submitted report approved will forward report to the pass through entity (DPI) If the financial statements are going to be late, write to LGC and DPI explaining the reason.

19 DPI review Analyze financial data Financial Performance Framework Significant changes in footnotes Audit Findings

20 What is the Financial Performance Framework a monitoring tool that provides key data: to assess the financial health past financial performance Current financial health Potential financial trajectory to assess the viability of the school to determine whether deeper analysis or monitoring is required.

21 Financial Performance Framework Uses: Assessment and General Monitoring Intervention Renewal Revocation

22 Example of Financial Information Audit Audit Audit Cash 763, , ,861 Current Assets 851, , ,820 Total Assets 1,413,462 2,367,088 2,779,469 Current Liabilities 404, , ,150 Total Liabilities 466,000 1,108,119 1,001,911 Deferred Inflows of Resources Net Assets / Fund Balance 947,462 1,258,969 1,777,558

23 Financial information Audit Audit Audit Total Revenue* 3,570,192 3,776,518 3,944,421 Total Expenses* 3,321,987 4,671,598 3,673,041 Expenditures Under (Over) Rev 248,205 (895,080) 271,380 Other Financing Sources (Uses) Transfers to other funds Loan proceeds Proceeds from capital lease 6, Proceeds from notes payable 0 760,000 0 Special Item: Insurance reimbursement Net Change in Fund Balance 254,378 (135,080) 271,380

24 Ratio Analysis R A T I O S A N A L Y S I S m Indicators Current Ratio Unrestricted Days Cash ADM Variance (Increase or D Default No No No Revenue over expenditures 248,205 (895,080) 271,380 ility Indicators Total Margin 7% -4% 7% Debt to Asset Cash Flow 120,896 (210,260) 210,836 Debt Service Coverage Ratio Fund Balance 17% 9% 19%

25 Report A report of financial concerns is created for each school with the following: Indicators of financial weakness Audit findings Student accounting concerns Other issues from other areas with financial implications eg. EC non compliance

26 RED Flags Fund Balance decline or negative Expenditures exceed revenue Student count decline during the year or between years Low or negative cash balance Failure to pay health insurance and/or employee retirement plan payments Current & Long Term Debt excessively high or increasing Operating expenses higher than budget Audit findings

27 Financial Statements (concluded) Most Common Audit Findings Absence of Conflict of Interest Policy Absence of Required Language on Contracts No indebtedness of any kind shall constitute an indebtedness of the State or its political subdivisions, and no indebtedness of the charter school shall involve or be secured by the faith, credit, or taxing power of the State or its political subdivisions. Internal Control Deficiencies Segregation of Duties* Procurement - suspension and debarment Review and signoff Claims in excess of eligible cost Costs claimed lacked supporting documentation

28 DPI Follow up Action Contact school Request additional information or explanation Place on financial non compliance

29 Financial Noncompliance What are three stages of noncompliance for charter schools? LEVEL 1 = Cautionary Stage (30days) Minimal level warning to encourage immediate compliance. LEVEL 2 = Probationary Stage (30days) State funds may be allotted on a monthly basis. LEVEL 3 = Disciplinary Stage (10 days) 10 days to respond to noncompliance issues. Last step before recommendation revocation of charter.